Are Property Taxes a Deductible Expense?
What is the relationship between income and property tax and are property taxes deductible from income tax returns? When you file your federal income tax, you are allowed to make certain deductions which reduce your taxable income and, therefore, the amount of tax you actually pay. Many people take the standard deduction allowed for their income level while others itemize deductions. Before 2008, only people who itemized deductions could deduct their property taxes. But in tax years 2008 and 2009, even those who do not itemize are entitled to a limited property tax deduction: up to $500 for single taxpayers and $1,000 for married couples filing a joint tax return, depending on one's tax bracket. The actual deduction is based on the lower of the following: your proper tax bill or $500 (if single) and $1,000 (if married and filing jointly). This change in tax regulations is especially beneficial to those who have owned their homes for a long time, are close to paying off their mortgages, and can't usually claim significant deductions from mortgage interest payments.
For those who itemize, the story remains the same. The entire amount of your property tax is deductible provided it is based on the assessed value of your property and charged uniformly for all properties in the same region based on the same formula. Any tax that is particular to your own property, such as taxes for improvements to your property or street, like sidewalks, sewers, and street lights for example, are not deductible.
Please bear in mind that this discussion of property taxes and deductions apply to federal income tax returns. What applies to state income tax returns differs by state, so check with your state tax authority to find out if property taxes are a deductible expense in your state.
Image Credit:Tax papers by Chuck Gallegher